Euro in banks: for the time being only deposits from AFJPs

Portada en Ingles

By Sergio Dattilo
Columnist for Ámbito Financiero

In Argentina, only the AFJP s (pension funds) have deposits in euro for the time being. But even these professional investors have been cautious: up to March 30th, fixed term deposits in euro amounted to only US$ 80 million in all; US$ 74 million were deposited in ING while US$ 6 million went to Banco Río.

Also the State, the province of Buenos Aires and many local companies have issued bonds denominated in euro (25% of the debt is in euro that is why a significant amount was saved in public coffers due to the euro' s fall against the dollar); however there are still no retail or producer goods in euro in the Argentinean financial system, in spite of the fact that this would be already allowed by BCRA's ( Argentinean Central Bank) rules.

Circular number 3,250 from BCRA states in advance that if an organization asks the bank for permission to open an account in other currencies, it can authorize them. During the ten years convertibility has been implemented, cases such as these were very few. On one occasion, a bank form the Far East wanted to open current and savings accounts in the country's currency but the Central Bank did not authorize this.

Nowadays, the there would be a change in attitude (in spite of the fact that the president of BCRA is opposed to introducing the euro into convertibility).

*No demand

"It is true: since the coming into force of convertibility it has been possible to make contracts in any currency, provided the Central Bank authorized this previously. The only aspect which was not regulated was current accounts; but I guess this is going to change now,"
says Martín González Kenny from ING. "Enchasments in euro were not allowed either".

The fact is that there is still no demand for deposits in euro and -in spite of Domingo Cavallo' s wishes, this may take time. There would be two reasons not to run into debt in euros:

* Getting a loan in a currency other than the peso or the dollar implies an additional exchange risk. Up to now, one peso is worth one dollar and there is no exchange risk but in January 1999 the euro was worth US$1.20, on October 25
th it hit is lowest level, reaching US$ 0.8272 and yesterday it closed at US$ 0.89.

* In general, Argentineans are not familiar with the euro; on the contrary, businessmen and the retail market are used to running into debt and/or make investments in dollars.

There could be only one reason to negotiate a loan in euros, but it may be outweighed by the drawbacks : the rate in euros is 0.25% below the Federal Reserve's.

What about deposits?

It remains to be seen whether the changes in BCRA's charter, promised by the minister yesterday, include that of
SEDESA (Deposit Insurance Company): the thing is that the institution which gives collaterals for deposits in the financial system only takes into account those in euro or in dollars. In other words, any current or savings account in euro at least for the time being, would not be included in the collateral system.

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